Stocks rally as Bernanke stokes the QE3 flames whilst Merkel comments also support
City Index March 26, 2012 10:00 PM
<p>European stocks rallied progressively throughout the day as somewhat dovish comments by Fed Chairman Ben Bernanke helped to raise optimism that QE3 was still in […]</p>
European stocks rallied progressively throughout the day as somewhat dovish comments by Fed Chairman Ben Bernanke helped to raise optimism that QE3 was still in the Feds thinking, whilst German Chancellor Angela Merkel also hinted that she may be prepared to weaken her stance against boosting the eurozones bailout funds.
The FTSE 100 closed higher by 0.8% above the 5900 level whilst the German DAX index rose 1.2% and the Spanish IBEX bounced from earlier heavy woes to close down by 0.7%.
It’s been a day whereby comments from important figures in the finance world, Angela Merkel and Ben Bernanke, have dictated much of the days short term investments flows.
It was however the better than expected reading in German Ifo business survey that started the day’s rally with stocks getting picked up by investors from their day’s lows after the reading emerged. German Ifo came in at 109.8 which was slightly above forecasts at 109.6, boosting hopes that German business confidence remains resolute in spite of slowing global growth.
Merkel’s stubbornness may be starting to subside
Stocks received a further boost after noon when Angela Merkel indicated that she may be prepared to relax her vociferous stance against boosting the regions bailout funds, with the claim that the European Stability Mechanism (ESM) should remain permanently at €500billion, but that it could also be allowed to run in parallel with EFSF, which has a size of €440billion of which €240billion remains unused.
This is an important sign that indicates perhaps the German leader’s stubbornness towards increasing the financial firewall is about to subside.
The rhetoric paves the way for progressive talks to take place amongst eurozone finance ministers in Copenhagen later this week which could see the eurozone’s firewall against further debt contagion bolstered, and this would reaffirm their commitment to preventing further fall out.
Bernanke stokes the QE3 flames
Further rhetoric from Ben Bernanke also improved near term investor sentiment and risk appetite, with investors buying into the stocks after the Fed Chairman indicated that the Fed will remain accommodative.
The rhetoric was interpreted by most as dovish, despite US economic data showing a marked improvement in the general health of the US economy.
The key here is that Bernanke’s comments helps to keep the potential for a third phase of quantitative easing firmly on the table and it is this element that is also helping to support stocks in afternoon trading today.
A key reference point for investors within the overall tone struck by Bernanke was to align ‘an accommodative monetary policy stance’ with the need for quicker growth. This is an important aspect to draw on as it shows that the Fed is not only interesting in minimising any downside risks from global growth pressures but it is also keen to facilitate a quicker return to stronger economic growth and it is here where investors have been quick to draw a parallel to the potential for QE3.